New to credit cards?

Credit cards are an increasingly important part of our financial lives. It’s hard to book a holiday, buy things online or build a credit history without one. If you’re new to your Luma card or to credit cards in general, take a moment to learn more about how you can use them responsibly to build your credit rating.

The Debit/Credit Difference

A debit card helps you pay for things by using money you have in your bank or building society account. When you make purchases with a debit card, the money comes straight out of your account. Unless you have an overdraft facility with your bank, you won’t be able to spend more than you have in your account.

With a credit card, money for purchases doesn’t come straight from your actual bank account, but instead, from a line of credit issued by a credit card provider. Your line of credit works a lot like a loan. The amount of your line of credit is called a “credit limit.”

Credit Limits & Interest Charges

Your credit limit is the total amount you have available to spend with a given credit card. The amount of your credit limit is based on your credit report and tends to be larger if you have a high credit rating. You can make charges up to your pre-set credit limit, and if you go over your limit, you generally have to pay a fee and/or purchases may be declined by your credit card provider.

Each month, you can pay off your balance in full to avoid interest charges. If you decide to carry a balance, you will have to pay interest on the balance. Those with lower credit scores, like many who are new to credit cards, generally have to pay higher interest on outstanding balances. This is because your credit history helps a credit card issuer determine how likely you are to repay an outstanding balance.

Credit Card Payments

Paying your balance in full every month is the best way to avoid interest charges. However, if you decide to carry a balance, you’ll have to make a monthly payment toward that balance which goes toward the amount you owe plus interest charges. Your credit card provider will tell you what the minimum payment is when you carry a balance. It’s a good idea to pay more than your minimum monthly payment so that you pay down your balance faster and pay less interest overall.

Purchase Safeguards

While it’s generally a good idea to make as many purchases with cash as possible, there are a lot of instances when credit cards can be better for purchases— especially if you buy things online.

When you use a debit card to buy things online, you’re using the actual money in your bank account. Though your bank is likely to have measures to protect your funds from errors or fraudulent activity, you may be out-of-pocket for a certain amount while your bank investigates and corrects an issue. For example, let’s say you buy concert tickets with your debit card. If you are accidentally double-charged for the tickets you buy, this money will come straight out of your bank account, even though it’s an error. Depending on the policies of the ticket provider and your bank, it may take time to reverse the charges back into your account. This wouldn’t be ideal if you had other expenses to pay that required cash while you waited for the error to be fixed.